Abstract

We examine the first widespread use of capital controls in response to a global or regional financial crisis.In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess theircausal effects on macroeconomic recovery from the Great Depression. We find evidence that theystemmed gold outflows in the year following their imposition; however, time-shifted, difference-indifferences(DD) estimates of industrial production, prices, and exports suggest that exchange controls didnot accelerate macroeconomic recovery relative to countries that went off gold and floated. Countriesimposing capital controls also appear to perform similar to the gold bloc countries once the latter group ofcountries finally abandoned gold. Time series regressions further demonstrate that countries imposingcapital controls refrained from fully utilizing their newly acquired monetary policy autonomy. Even so,capital controls remained in place as instruments for manipulating trade flows and for preserving foreignexchange for the repayment of external debt.